Updating your SMSF trust deed

Self-managed superannuation funds (SMSF) are governed by the rules set out in the trust deed, therefore, trustees need to ensure any actions do not breach the rules in the deed.

As the trust deed is a legal document providing the governing rules for establishing and operating your SMSF, it needs to be reviewed and updated to reflect changes to superannuation legislation. The trust deed covers provisions such as whether binding death nominations are allowed, whether certain investment strategies are permitted, whether the fund can pay a pension income stream etc.

Out-of-date provisions may result in significant adverse effects on members’ benefits, estate planning and breaches may result in potential administrative fines.

For example, non-lapsing binding death nominations are not covered in older trust deeds, meaning that some SMSF members may have unintentionally created three-year lapsing nominations.

As a binding death nomination must be updated every three years according to superannuation law, the implication of this is that members may either have an invalid nomination, or may die without a nomination. This means a deceased member’s wishes will be ignored due to a technicality.

Generally, your trust deed should be updated after legislative changes to superannuation, if the deed has not been amended within the past five years or when a member wishes to undertake a course of action that may not be authorised by the deed.

Motivating your employees

One of the more challenging aspects of managing staff is working out how to keep them motivated. Motivated employees are not only more productive but they are less likely to want to leave your business.

Fortunately, motivating employees does not always need to involve financial incentives. Here are some tips that can help you to get the most out of your workers:

• Provide opportunities to learn

Motivate your employees by offering training that provides them with the skills to advance their career. Offering opportunities to learn and grow with your business can make staff feel highly valued and enables you to build your business’s reputation as a great place to work – attracting better applicants.

• Empower them

Asking for input and suggestions engages your staff and helps them to feel more appreciated. Giving employees more accountability and authority to make decisions demonstrates your trust in them, resulting in more committed and driven staff. It is also important to recognise and reward past achievements of individuals as it can be a great motivator for future progress.

• Regular communication

Frequent, face-to-face communication keeps your staff in the loop and provides opportunity to discuss issues and improvements that need to be addressed. Sharing non-sensitive information about their contribution and impact on your business can provide further motivation as they can attribute their work to the larger picture.

Donating to charity

With so many charities competing for donations, it can pay to spend time researching to make sure your money is used for the cause you want to support. Just as important to making sure that the charity you donate to actually receives your donation. Here are some aspects to consider before you make a donation:

Choose a charity wisely
Regardless of what motivates you to support one charity over another, you should feel comfortable with your chosen charity’s activities and how it plans to use its donations. Donating directly to an overseas-based charity can be risky since it can be difficult verifying the information found on the charity’s websites or social media profiles.

How you will donate
There are a number of ways people can donate to charity. Some people feel comfortable making a regular set donation, whereas others prefer one-off donations. Individuals can also support a charity through automatic deductions from their salary. For example, if an employer has a workplace giving scheme, an employee’s donation can be deducted from their pay and sent directly to their preferred charity.

Those who opt to do this earn tax benefits at the time of donation and get a summary of payment at the end of the year. However, individuals should ensure that they can only participate in a workplace giving program if the charity has deductible gift recipient (DGR) status.

Another method of donating is to leave a bequest in your will. To do this, individuals need to contact the charity directly to discuss their plans.

Check if it is a legitimate charity
If the name of a charity seems unfamiliar, individuals should ask for more information about it, like where it is based, what its donations used for and if donations are tax deductible. Even if you have heard of the charity before, it can pay off to check that the person who contacted you is authorised to represent the charity.

Also, be wary of giving out your credit card details, as there are other ways of donating if it is a reputable charity contacting you.

Check if your donation is tax-deductible
A donation will only be tax deductible if it is donated to a charity that has been endorsed by the ATO as a deductible gift recipient (DGR) organisation.

Tax deductions are only given for donations that are $2 or more and claimed in the person’s tax return for the income year in which the donation was made.

Managing flexible working arrangements

Small businesses operating in an ever-changing environment increasingly need to ensure they get flexible working schemes right. Finding the right balance can be mutually beneficial for both your business and employees.

Business owners are responsible for effectively implementing and managing flexible working arrangements that ensure all employees are satisfied. Here are some things to consider when approaching flexible working schemes:

Employer obligations
Flexible working arrangements not only make commercial sense but employers are legally obliged to consider the arrangement where an employee applies. Therefore, consideration needs to be given to all employee requests and when assessing applications you must make sure that they are not unfairly disadvantaged by their personal circumstances.

It is important to remain up-to-date with the latest legal documents, contracts and processes to ensure your business complies within its legal requirements.

Adopt a specific policy
Introducing a specific policy so decisions are clear and consistent for all employees is vital to the success of flexible working schemes. Inform employees of your expectations when commencing an arrangement, such as using an ‘out-of-office’ message when away, sharing employee work schedules and online calendars etc.

Performance management
Reviewing flexible arrangements on a regular basis is a great opportunity to provide feedback to your employees and make any necessary changes. Conducting performance reviews for staff on flexible arrangements should be the same as for anyone else. Business owners may also want to consider gaining feedback from colleagues as these arrangements need to work for the whole team to succeed.

Insurance traps in your super

Insurance arrangements in super can create a few surprise outcomes for members who leave big superannuation funds to start their own self-managed super fund yet leave a portion in their old fund.

Members need to be wary of the traps that can cause a loss of cover. As insurance is a complex financial product; members need to understand the benefits, risks and the costs entailed when entering into insurance cover in large superannuation funds.

Even though it may seem advantageous to access low cost insurance with a large super fund there are some circumstances that may cease insurance cover including:

• Minimum balance requirements are not met

Most large super funds will require members maintain a minimum balance in their account to retain cover which can range from as low as $1,000 and up to $10,000.

Although most funds allow insurance cover to be kept providing premiums can be automatically deducted, some funds may cease cover once the account balance falls below the threshold and when no employer contributions have been made for six months.

• No employer contributions

Some superannuation funds that offer automatic income protection insurance will terminate a member’s insurance cover if employer contributions cease for six months. Other funds may cease income protection insurance cover after 13 months from the date of the last employer contribution regardless of the account balance.

• No longer working for a particular employer/industry

If you change employers or no longer work in a particular industry you may risk losing your insurance cover. Funds may require that a particular employer makes contributions to the account to retain total and permanent disability (TPD) and income protection cover.

• No longer working in the public sector

Members who cease to work in the public sector may risk losing their cover from the day they officially cease employment with the relevant public sector. These public sector funds generally do not accept further contributions or rollovers if the member is no longer working for the relevant public sector employer.

• Terminal illness payouts

Some super funds may pay out insurance at the TPD level upon terminal illness, which reduces any remaining life cover paid on death. This may result in a deprivation of funds to account for medical or palliative care before death. This style of cover is in stark contrast to other funds that pay out 100 per cent of life cover upon terminal illness.

ATO identifies industries targeted for potential tax audits

The ATO has identified certain businesses it plans to target for potential tax audits. These businesses include the supermarket, bakery, computer system design and car retailing industries that often need more help to meet their tax and super obligations.

In response to this, the ATO has begun an education campaign for business owners in these industries to assist them better understand their responsibilities such as superannuation, pay as you go (PAYG) withholding and FBT.

From July 2016, the ATO will be undertaking audits of employers who continually fail to meet their obligations, particularly those who do not correctly meet their superannuation obligations.

The tax office will be examining:
– how much employers are required to pay
– if employers are meeting their quarterly deadlines
– if employers pay super for contractors
– if employers are keeping accurate records
– if employers pass on an employee’s TFN to their super fund within 14 days of receiving it

ATO cautions SMSF trustees about transition to retirement streams

The ATO has issued a statement expressing its concern over recent misrepresentations of transition to retirement income streams (TRIS) and how they are meant to operate.

In its statement, the ATO said that under special circumstances a member can select under regulation 995-1.03 of the Income Tax Assessment Regulations (ITAR) 1997 to treat a TRIS payment as a super lump sum and access the low rate cap.

Members who choose to make this election for income tax purposes must recognise that the nature of the payment from the SMSF does not change for the purposes of the super regulatory law.

The tax office has warned that the complexity surrounding these transactions give rise to a number of issues that trustees need to consider to ensure their SMSF’s compliance with superannuation regulatory and income tax laws.

In particular, the ATO reminds trustees that:

• it is the nature of a TRIS payment for superannuation regulatory law purposes that is relevant to a trustee’s compliance with the 10 per cent TRIS payment annual limit

• if the TRIS payment is not a lump sum for super regulatory law purposes, it cannot be paid by an in-specie asset transfer

• electing for a TRIS payment to be treated as a super lump sum for income tax purposes may affect the amount of the SMSF’s exempt current pension income for an income year and whether particular fund assets are segregated current pension assets

• electing for a TRIS payment to be treated as a superannuation lump sum for income tax purposes will affect which super-related tax offset/s may apply to the payment

Hiring younger workers

Businesses that choose only to hire experienced staff are missing out on the energy, drive and creativity of youth. Many employers are reluctant to hire young people because they doubt their readiness to work, abilities and skill level.

However, business owners need to realise that younger people do have plenty to offer, and in the right environment, will thrive. For example:

• Younger workers are keen and ready to work

Many young people came into the job market during or after the last recession, which has had a continuing impact on the job prospects of young Australians. Young people want to work and they want to prove themselves.

• Younger workers have grown up in a digital world

While this isn’t to say that older people don’t understand the latest digital technology, for younger generations, digital has always been the norm.

• Younger workers are often more adaptable

Since youth is a time of change and flexibility, young people are flexible and willing to learn new skills. They are also usually eager to work in new areas or locations.

• Social media is part of their lives

Younger people can use social media platforms like Facebook, Twitter, WhatsApp, SnapChat, Instagram to reach customers, prospects and future business partners.

• Younger workers follow trends

Younger workers have the time, energy and interest to keep up to date with the latest products and services. They can help a business adapt quickly to these trends and act as focus groups for targeted marketing campaigns.

Protecting your SMSF

Most self-managed super fund trustees don’t give much thought as to how much professional indemnity (PI) insurance their advisor has.

But since PI insurance is the only course of action to recover lost funds for trustees who become victims of fraud or negligence, it is an essential prerequisite trustees should be aware of.

PI insurance is insurance that provides financial compensation to trustees in the event that the advice they have been given proves to be negligent.

Unfortunately, there are many cases of negligent advice. Negligence becomes a factor when an adviser alludes to a particular idea or strategy they don’t understand or know to be deceitful (or even fraudulent) and encourages a trustee to think about it in a positive way.

SMSFs are all about individuals taking responsibility for their super, which includes being aware of circumstances where things can go wrong.  Therefore, one of the essential prerequisites for anyone engaging an SMSF adviser is to be aware of the professional indemnity insurance they have. That involves directly asking them how much insurance cover they have and whether or how it covers the services they offer.

The advisor should provide this is information in writing as it may need to be referred to in case there is cause to make a claim against it.

Competent SMSF advisers will have read a trustee’s fund trust deed and not give advice that is contrary to what it states, as doing the latter can be regarded as negligent.

Anyone who is competent enough to provide specialist SMSF advice has professional indemnity insurance, including accountants, financial advisers, auditors, SMSF administrators and tax agents.

Questions to ask about PI cover is whether it captures all the advice about services that are provided e.g. strategic advice about super pensions such as transition to retirement pensions.

Knowing what services are not covered under PI insurance and why this is so is also just as important. An entitlement a fund could win when successfully challenging an adviser under a PI insurance claim is restoring the fund to what it was before the advice was given.

Delivering customer service

Every business has a basic obligation to provide its customers with quality goods or services. That is quality in the sense of delivering what you say or on a promise. It is the business’s responsibility to make sure they are not selling shoddy or unsafe products or services. However, whilst a business would like every customer to be fully satisfied with its products or services, the reality is that sooner or later everyone is going to have some unhappy customers.

It is sometimes reassuring to dismiss dissatisfied customers as chronic complainers, but try to think of complaints or questions as an opportunity to improve your products, services, and performance. By developing a customer feedback and complaint-handling procedure, you can turn negative situations into opportunities to build customers for life. In your complaint program, incorporate some or all of the following principles:

Acknowledge
As a first step acknowledge customers concerns. Regardless of how a problem has arisen, simple recognition of a concern will make the resolution process far more effective.

Apologise
Saying “we’re sorry” is an important first step in letting customers know you care when they have a problem.

Don’t blame the customer
When you blame a customer, they see it as a personal attack. Often misunderstandings are due to businesses creating false expectations in the minds of their customer.

Admit your errors and solve the problem
Every business makes mistakes. Be determined to get to the root of the problem, make it better for the customer, and prevent the problem occurring again.

Refrain from using the excuse “it’s company policy”
No phrase is more dismissive, making your customer feel powerless and intimidated. The first step in any resolution is to place the customer and you on equal ground.

Empower employees to solve minor problems
When you do this you will have happier staff and you could save your customers a bureaucratic nightmare.

Encourage feedback
Make it easy for customers to let you know how they feel. Providing feedback cards to customers allows them to rate your products or services. It also gives them a chance to let you know what you’re doing right.

Don’t win the battle and lose the war
Trying to save a few dollars but losing a customer is penny wise and pound foolish. There may be a small percentage of customers who will take advantage of you, but the majority will be even more loyal if they know you’ll fix problems.